Introduction to Innovation and Economic Organization

Rögnvaldur J. Sæmundsson

ABMS

January 16

2007

Overview

• Who am I?

• Defining the problem/topic

• The innovation process

• Economic organization

• Basic structure of the current model

Rögnvaldur J. Sæmundsson

• Electrical Engineering from UI.• Sleep Research Unit at Landspitalinn.• MS in Engineering from UI.• Director of Software Dev at Flaga.• PhD in Technology Man. from CTH.• Associate prof. RU School of Business.• Research on New Technology-Based

Firms (NTBFs) and the growth of knowledge.

• Teaching entrepreneurship, strategy&innovation, and ABMS.

Defining the problem/topic

Technological innovation

Network of specialized activity

Changes in specialization

Source: Soubbotina (2004)

Changes in taste/preferences

Summary of the problem/topic

Innovation

∆Resources ∆Knowledge

∆Organization ∆Wants

The innovation process

Definition of innovation

• New products or services

• New ways of developing, producing, distributing, marketing or selling products or services

The linear model

Science Technology Products

Research

Development

Production

Marketing

The chain-linked model

Source: Kline and Rosenberg 1986

Characteristics of innovation processes

• Interaction of markets and technology

• Complex costs and benefits

• Different degrees of novelty

• Uncertain outcomes

Diffusion

Time

Market penetrationProductivity of R&D $

Innovation in an industry

Source: Utterback 1994

Economic organization

Basic objective of organization

Coordinate economic activity

- Production and distribution

- Exchange

Enable specialization

Basic governance structures

• Markets

• Hierarchy (firms)

• Hybrids (long-term contracting)

Distinguishing attributes

Governance structure Attributes Market Hybrid Hierarchy Incentive intensity ++ + 0 Administrative controls 0 + ++ Autonomous adaptation ++ + 0 Cooperative adaptation 0 + ++ Contract law ++ + 0 ++ = strong; + = semi-strong; 0 = weak.

Adapted from Williamson (1991)

Suitability of governance structure

0

Govern

ance

Cost

s

Asset Specificity

Market

Hybrid

Hierarchy

Adapted from Williamson (1991)

Basic structure of the model

Basic modules

Individuals

IndividualsIndividuals

Firm

Individuals

IndividualsIndividuals

Firm

IndustryProductmarket

Factormarket

Externalknowledgegeneration

Point to remember

“This is the course in advanced physics. That means the instructor finds the subject confusing. If he didn’t, the course would be called elementary physics.”

Luis Alvarez, Nobel laureate, 1964